2016 Elections - After “Super Tuesday” the Race Narrows
We focus our attention on a handful of important policy issues for the new Congress and administration.
Paul Christopher, CFA®, Head Global Market Strategist
- Presidential candidates Clinton and Trump both took important steps towards their parties’ nominations on Super Tuesday, March 1.
- Keeping in mind this election’s added significance, and the added strength for the Clinton and Trump campaigns, we focus on a handful of important policy issues for the new Congress and administration.
What it may mean for investors
- Still, investors should keep in perspective that politics does not necessarily make policy, and the economy is larger than the government.
The March 1 “Super Tuesday” primaries lent a stage for political decisions across 11 states from Alaska to Alabama to Vermont. The overall winners did not secure their parties’ nominations but stepped closer to that goal. The results allow for some additional analysis on issues under a President Clinton or a President Trump, but we also suggest a broader perspective at this still early stage of the campaign.
The Democratic race has clarified significantly. Senator Sanders has lost much ground since his Vermont win, especially outside the Northeast. Secretary Clinton has built such a lead that she needs only an average of 40.6 percent of the remaining delegates to secure a majority (Table 1). This piece of the puzzle, at least, seems increasingly set.
Table 1. Campaign Promises Kept Have Declined
|Pledged from Primaries||Pledged Super Delegates||Total||Delegates won in February Primaries||Delegates won on March 1st Primary||Percentage of remaining Delegates needed to win*|
* The percentage needed to win (i.e. secure the Party’s nomination) is the number of delegates pledged (via primaries or caucuses and including Super Delegates), divided by the number yet to pledge (via primaries or caucuses and including Super Delegates). For more details on Super Delegates, please see the following link. http://www.realclearpolitics.com/epolls/2016/president/democratic_delegate_count.html
Meanwhile, the Republicans have struggled to find a single candidate to challenge Mr. Trump effectively. Super Tuesday again showed how the field, divided, has fallen. In Virginia, for example, Senator Rubio finished second to Mr. Trump by only three percentage points, but probably suffered from splitting the anti-Trump vote with Governor Kasich, who captured nine percent.
Mr. Trump may still be vulnerable. He won in 10 of the first 15 state contests but only garnered 36 percent of the popular vote and 46 percent of the delegates. Consequently, Mr. Trump would have to win a much higher proportion of the electorate in the remaining state votes than he has so far (51.4 percent) to reach a majority of delegates (Table 2).
Table 2. Republican Party Delegate Count
1237 delegates needed to win the nomination
|Total Delegates Controlled||Delegates won in February||Delegates won in March 1 contests||Percentage of remaining Delegates needed to win*|
* The percentage needed to win (i.e. secure the Party’s nomination) is the number of delegates pledged (via primaries or caucuses), divided by the number yet to pledge (via primaries or caucuses).
Yet, time is running short for a Republican challenger to emerge, and the primary elections on March 15 could be decisive. On that day five large states vote and Florida and Ohio are winner-take-all contests, with enough delegates at stake that Mr. Trump may finish the day within easy reach of the nomination. In sum, the March 15 primaries may be necessary for clarity and likely will decisively dash any lingering speculation about a narrowing Republican race or a brokered or contested convention in Cleveland later this summer.
Where Should Investors Focus Attention Next?
All elections matter, but few provide voters such a clear opportunity as this one to shape all three branches of the federal government. Keeping in mind this added significance, and the extra strength for the Clinton and Trump campaigns, we next focus our attention on a handful of important policy issues for the new Congress and administration.
On issues where candidates Trump and Clinton agree, we expect a greater probability for new policy initiatives. For example, the Republican and Democratic presidential front runners favor restricting prescription drug price inflation. Likewise, both candidates favor restricting some trade provisions. Clinton proposes additional Buy American requirements, while Trump opposes or would rework trade pacts, particularly the Trans-Pacific Partnership, President Obama’s proposed 12-nation trade zone. In our view, both approaches would tend to support smaller, domestic companies at the expense of larger, multinational firms and agriculture.
Still, we recommend weighing the market impact of any campaign promise in terms of the division of views across the branches of government. On perhaps the most important issue for the economy, taxes, the Democratic and Republican candidates do not even define tax reform the same way. The Democrats outline reform in terms of decreasing income inequality, while the Republicans emphasize lower rates and a simplified tax code. Thus, a President Clinton may struggle to implement her view over a Republican-controlled Congress. By contrast, lower rates and a simpler tax code may be a reasonable prediction under the scenario of a President Trump and a Republican Congress. However, on trade, immigration, health care, and other issues, a Democrat-Republican power split – or even a split between Mr. Trump and other Republicans – obscures the policy directions on other key issues. The candidates’ personalities and promises matter, but the ultimate legislative direction depends on negotiations yet to be held between a new Congress and a new president, and possibly adjudicated by a different balance of views on the Supreme Court.
Above all, investors should keep a long-term perspective. Election campaigns make for a spectacle which can distract us all from important trends and events that seem more mundane. To begin with, financial markets do not necessarily perform better under one party or the other. In fact, back to 1897 the Dow Jones Industrial Average price index does not show a clear pattern of outperformance under either political party. Moreover, private spending last year amounted to several times the total of government Federal, state, and local spending and investment. We still see the economy as the main driver of investment returns and recommend that investors focus on the ongoing economic expansion and their long-term investment objectives.
All investing involves some degree of risk, whether it is associated with market volatility, purchasing power or a specific security. Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments.
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